The First Time Homebuyer Tax Credit Changes to 2009 Tax Law
Introduction
In 2008 we were introduced to the new First-Time Homebuyer tax credit. It was an effort to stimulate a sagging real estate market and the overall American economy. Recently, the IRS has made some very important changes to this original plan. We will take a look at these changes and answer a few questions along the way.
I. Who is a First Time Homebuyer?
With the government there is always a qualification in the definitions they use that may or may not sync with common sense or reason. A first time homebuyer is not necessarily someone who has NEVER owned a home. The government definition means that whoever it is that is purchasing a home must not have had any ownership in any principal residence for 3 full years. The ending date for this time period is the date of the purchase of the new home. If the buyer is married, then neither spouse can have had ownership in a principal residence.
For the government's purposes, the principal residence is the home where the tax payer lives most of the time. That counts mobile homes, condos and townhomes as well as being principal residences.
II. 2008 Credit Rules
The 2008 rules for the First Time Homebuyer Credit were that the credit was to be a maximum of $7500 for a married couple or $3750 for a single person or 10% of the purchase price of the home, so a $50,000 home would only gain a $5000 credit. The allowed purchase dates ranged from April 8th, 2008 to July 1 2009. Since the rules changed for 2009 this leaves a period of almost 7 months of overlap, The 2008 rules allowed someone to treat a 2009 purchase as being completed in 2008 and amend their returns to get the credit faster.
This money however acted as more of a loan which would be repaid beginning after the second year after taking the credit over a period of 15 years. If the taxpayer sold the house, they were liable for the recapture tax on the unpaid portions of this credit. If the home ceases to be used as the principal residence, the same applies that this credit would be paid back in the tax year that the home is no longer being used by either party. In cases of divorce, the spouse that gets the house gets the recapture.
III. 2009 Credit Rules
The overlap that exists between the two years is, as of the date of this article being written, over. The changes that were made are as follows. First, the amount was increased from $7500 to $8000 and $4000 for married filing separately. Second, the regular recapture requirement was removed, so this is now truly a tax credit and no repayment is necessary.
The accelerated recapture, should the house be sold or no longer used as principal residence only applies to the first 36 months. So if the taxpayer can stay in the home for three years, the full $8000 is theirs to keep.
The credit is on a one credit per property basis, so there won't be any splitting the credit between properties. However, the taxpayers can as a married couple split one credit between them, two unmarried owners can split one credit between them. This is to prevent people from abusing this credit.
IV. Do You Need to Re-File your 2008 taxes?
If you purchased a home between January 1, 2008 and July 1, 2009 and the credit that is on your 1040 equals $7500, then that is a debt that you will have to repay beginning in 2011 through 2026. To file a 1040X might cost you the $500 difference in credit for the 2009 rules, but that will be $8000 you don't have to repay as long as you can live in the home longer than 3 years. (Hopefully your accountant doesn't charge that much.) But to turn a loan into a grant seems like a good idea to me.
More useful articles:
- Create Wealth - Learn How Building a Consistent Income Will Help You Create Unlimited Online Wealth
- Home Based Data Entry Jobs - Beat the Recession by Simple Filling of Forms
- 3 Jobs You Must Have in Order to Get a 7-Figure Income
- Use a Mortgage Calculator on Your Student Loans
- How to Succeed in Niche Marketing